Azam v. Carroll Indep. Fuel, LLC

Moylan, J. Our effort to pin a clear label on this appeal is at least tentatively inhibited by the ghost of anachronism. The appellant invokes the so-called Four Cent Rule. The Four Cent Rule was initially enacted by the General Assembly in 1978. 1 It was expressly designed to solve (or at least to ameliorate) what was then perceived to be a serious problem involving the oversight and regulation of the marketing of gasoline and gasoline products to gasoline stations or service stations throughout Maryland. Since the legislative session of 1978, however, the larger problem that gave rise to the Four Cent Rule has, for reasons independent of the Four Cent Rule, effectively, if not entirely, disappeared.

That disappearance accounts for the relative scarcity, if not total absence, of caselaw dealing with the Four Cent Rule. We have found no Maryland opinion even mentioning the Four Cent Rule. The rule may, indeed, have become obsolete at the very moment of its birth. The appellant, however, now picks up this legislative relic and brandishes it as if of yore.

His problem is that the circumstances surrounding his present invoking of the rule are different from the problem that the rule was designed to solve (or at least to ameliorate) in the first instance. The invocation of the Four Cent Rule at this late moment of time at least smacks of anachronism. It may be that it is being called upon to solve a problem out of its time. The Historic Context Because we are groping with subject matter that is relatively arcane, it behooves us to provide at least a thumbnail sketch of the historic context of the Four Cent Rule before we even presume to identify the litigants in this case or to describe the nature of the litigation.

Let us set the scene before this case's characters come on stage. A. Maryland Gasoline Products Marketing Act Of 1973 The Maryland General Assembly first took official notice of a growing problem in 1973 with the passage of the Maryland Gasoline Products Marketing Act. 2 In Becker v. Crown Central Petroleum Corp. , 26 Md. App. 596 , 340 A.2d 324 , cert. denied , 276 Md. 738 (1975), Chief Judge Orth for this Court spelled out the nature of the general problem: The General Assembly of Maryland at its session held in 1973 made known its concern about the distribution and sale through marketing arrangements of petroleum products in this State. It declared that the economy, the public interest, welfare and transportation were vitally affected thereby and found it necessary to define the relationships and responsibilities of the parties to certain agreements pertaining thereto. 26 Md. App. at 598 , 340 A.2d 324 (emphasis supplied). The core problem was the competitive imbalance between the major oil companies and the smaller independent service station operators, which the Act defined as "dealers." 3 The major problem as initially perceived was that the major oil companies, referred to variously as "distributors," "producers," or "refiners," were inclined to favor service stations that were owned by them and operated by their own personnel.

In their marketing agreements, the oil companies would favor their own directly owned and operated stations over those owned and operated by independent dealers. In Comptroller of the Treasury v. Crown Central Petroleum Corp. , 52 Md. App. 581 , 451 A.2d 347 (1982), Judge Wilner described the legislative concerns that led to the original 1973 Act. The 1973 law addressed what the General Assembly evidently saw as an imbalance of economic power between the oil companies and their dealers that it believed was detrimental to the State and in need of redress. The law required the oil companies to disclose certain information to prospective service station dealers before entering into marketing agreements with them; it precluded certain requirements and restrictions onerous to the dealers from being inserted in those marketing agreements; and it imposed certain requirements and restrictions upon the termination of the agreements. 52 Md. App. at 583 , 451 A.2d 347 (emphasis supplied; footnote omitted).

See, e.g., Akparewa v. Amoco Oil Co. , 138 Md. App. 351 , 771 A.2d 508 (2001). In an effort to restore and to guarantee some balance between the major oil companies and the "little guys" or "dealers," the Act imposed a series of requirements on the "distributors." Becker v. Crown Central listed a series of ameliorative devices aimed at redressing the "imbalance of economic power between the oil companies and their dealers." [T]he Legislature adopted a comprehensive scheme covering three general areas : (1) it required certain information to be given by a distributor to a prospective dealer; (2) it delineated certain provisions to which marketing agreements (were) subject; and (3) it provided sanctions for violations. 26 Md. App. at 599 , 340 A.2d 324 (emphasis supplied). In making it clear that the General Assembly was dealing with major oil companies and not with everyone who bought gasoline wholesale and sold it at retail, the Court of Appeals, in Governor of Maryland v. Exxon Corp. , 279 Md. 410 , 370 A.2d 1102 (1977), defined "producer" and "refiner" in no uncertain terms. Likewise, we find, as did the trial court, that the term 'producer or refiner' is not unconstitutionally vague.

A producer, as used in the Act, is a person, firm or corporation engaged in the production of crude oil , i.e., extracting crude oil from the earth. A refiner is one engaged in refining crude oil. 279 Md. at 455 , 370 A.2d 1102 (emphasis supplied). B. The Divestiture Act of 1974 And 1975 If the General Assembly in 1973 was still feeling out the nature and scope of the problem it was first addressing, it opened the campaigning season of 1974 with a full scale frontal offensive. Instead of merely limiting the ways in which the major oil companies, the "refiners," "producers," and "distributors," could favor their own directly owned and/or controlled service stations over the independent "dealers," the little guys, the General Assembly undertook to eliminate the favored category in one fell swoop.

It went straight for the jugular. In Comptroller v. Crown Central Petroleum this Court described the legislative motivation: [T]he legislature was reacting to what it perceived as a growing and harmful trend toward vertical integration in the marketing of petroleum products. Evidence was presented to the legislature that the oil companies had begun to change their marketing strategies, that they were beginning to favor stations owned and operated directly by them, with their employees, in lieu of the more traditional dealer-operated stations , and that, in furtherance of that policy, they discriminated against dealer-owned or operated stations in the allocation of product and in various pricing policies. 52 Md. App. at 584 , 451 A.2d 347 (emphasis supplied). The legislative response was swift and sure.

Chapter 854 of the Acts of 1974 enacted what became commonly referred to as the Divestiture Law. It is now codified as Maryland Code, Business Regulation Article, Sect. 10-311. The Divestiture Law was designed for the stated purpose of " 'prohibiting producers or refiners of petroleum products from operating retail service stations.' " 52 Md. App. at 584 , 451 A.2d 347 . The elimination of producer-owned or producer-operated service stations was actually accomplished by a one-two punch, however, as Chapter 608 of the Acts of 1975 amended and supplemented its 1974 predecessor.

Judge Eldridge described the first prong in Cities Service Co. v. Governor of Maryland , 290 Md. 553 , 431 A.2d 663 (1981) : [A]fter July 1, 1974, no producer or refiner of petroleum products shall open a retail service station in Maryland and operate it with company personnel or a subsidiary company[.] 290 Md. at 555 -56 , 431 A.2d 663 (emphasis supplied). That first prong in 1974 prohibited the opening of new service stations owned or controlled by the major oil companies. Those already in operation were "grandfathered" in and were given a one-year lease on life before the second prong became operational in 1975. 4 [T]he Legislature went further and required that after July 1, 1975, no producer or refiner of petroleum products shall operate any retail service station in Maryland with company personnel or a subsidiary company, regardless of when the station may have been opened, and that all stations must be operated by retail service station dealers. 290 Md. at 556 , 431 A.2d 663 (emphasis supplied). C. The Divestiture Law In Limbo The root problem, of course, had been the competitive imbalance between the favored gas station dealers owned or directly controlled by the major oil companies and the non-favored independent dealers.

The Divestiture Law effectively eliminated the imbalance by categorically eliminating the favored class. There were no longer two broad categories of service stations ranged against each other. As long as the Divestiture Law remained in constitutional good health, therefore, the problem of imbalance was largely solved and lesser ameliorative adjustments were no longer necessary. Almost immediately, however, the constitutional vitality of the Divestiture Law was challenged.

Chapter 854 of the Acts of 1974 was signed into law on May 31, 1974. As of June 17, 1974, the Exxon Corporation filed suit in Anne Arundel County, seeking a declaratory judgment that the Divestiture Law was unconstitutional and invalid. A number of the other major oil companies joined in the action. At the conclusion of the trial, the Circuit Court for Anne Arundel County declared the law to be unconstitutional.

The State appealed and the Court of Appeals issued a writ of certiorari. On February 18, 1977, the Court of Appeals issued a unanimous opinion, authored by Judge Eldridge, reversing the Anne Arundel County trial court and holding the Divestiture Law to be constitutional. The constitutionality problem, however, was only in temporary remission. The Exxon Corporation, joined by the other major oil companies, applied for and received a writ of certiorari from the Supreme Court.

Justice Stevens's opinion gave an excellent description of the relationship between a distributor or refiner, on the one hand, and the retail service stations they directly control, on the other: All of the gasoline sold by Exxon in Maryland is transported into the State from refineries located elsewhere. Although Exxon sells the bulk of this gas to wholesalers and independent retailers, it also sells directly to the consuming public through 36 company-operated stations. Exxon uses these stations to test innovative marketing concepts or products. Focusing primarily on the Act's requirement that it discontinue its operation of these 36 retail stations, Exxon's complaint challenged the validity of the statute on both constitutional and federal statutory grounds.

Exxon Corp. v. Governor of Maryland , 437 U.S. 117 , 121-22, 98 S.Ct. 2207 , 57 L.Ed.2d 91 (1978) (emphasis supplied; footnotes omitted). On June 14, 1978, that Court issued a 7-1 decision, affirming the constitutionality of Maryland's Divestiture Law. Chapter 854 creating the Divestiture Law had been signed into law on May 31, 1974. The final Supreme Court imprimatur on the law's constitutionality was not filed until June 14, 1978.

The Divestiture Law, therefore, had been in a state of constitutional Limbo for just over four years. That state of prolonged uncertainty is an important factor in the present case. Had the Divestiture Law's constitutionality been immediately apparent, its effective elimination of the competitive imbalance problem would have been concomitantly immediately apparent and no lesser ameliorative chipping away at the imbalance would have been necessary. Because the constitutionality of the Divestiture Law was not immediately apparent, however, there was no reason for the legislative attack on the imbalance problem to go into suspended animation for four years.

Ameliorative or mitigating redress of the imbalance problem during that four-year interim, albeit in a sense contingent, was not at all inappropriate. D. The Four Cent Rule Foremost among the ameliorative measures was the Four Cent Rule. Chapter 993 of the Acts of 1978 was signed into law on May 29, 1978, and is now codified as Maryland Code, Commercial Law Article, Sect. 11-304(l). It provides: (l) Wholesale price of gasoline to noncontrolled outlets . - (1) A distributor who sets the retail price of gasoline through controlled outlets shall provide those noncontrolled outlets that it supplies with gasoline products at a wholesale price of at least 4 cents per gallon under the lowest price posted for each grade of gasoline at any controlled outlet.

Violation of this subsection constitutes price discrimination as prohibited by § 11-204(a)(3) of this title. (Emphasis supplied). The base figure from which the "4 cents per gallon" is to be subtracted is "the lowest price posted for each grade of gasoline at any controlled outlet." Sect. 11-301(b) defines precisely what the law means by the term "controlled outlet": (b) Controlled outlet . - "Controlled outlet" means an outlet which is operated by a distributor or operated by company employees, a subsidiary company, commissioned agent, or by any person who manages the outlet on a fee arrangement with the distributor. (Emphasis supplied).

The indisputable purpose of the Four Cent Rule was to eliminate (or at least to ameliorate) the imbalance or disparity between the independent retail dealers, the "uncontrolled outlets," and the service stations owned or operated by the major oil companies, the "controlled outlets." Chapter 993's Preamble left no possibility for doubt. The General Assembly finds that distributors of gasoline have sold gasoline in the State through retail outlets operated by them at prices below or substantially the same as the wholesale price at which the same distributors have sold gasoline to their retail dealers. Because of this pricing policy, retail dealers have been unable to fairly compete with the retail outlets operated by the distributors , and as a result, some retail dealers have ceased their business operations and a substantial number of retail dealers are faced with unfair competitive pricing practices which may force them out of business, thereby substantially reducing the number of independent retail dealers in this State. While the outlets operated by the distributors are in these cases selling gasoline at their retail outlets for a price less than that of their franchised dealers, the General Assembly is concerned that as these distributor owned operations become greater in number in this State, and acquire a larger number of prime sites, this competition in the sale of gasoline to the public shall be diminished, resulting in a potential decrease in independent competitors , creating the potential for the distributors to take advantage of their then dominant and potentially collective monopolistic position in the retail market to substantially increase the retail price of gasoline to the consuming public in this State.

The intent and purpose of this Act is to preserve competition among retail service stations in this State for the benefit of the consuming public and to assure that there will continue to be substantial competition among the several types of retail service stations in this State by providing a basis upon which all competitors shall be on an equal basis insofar as price is concerned. (Emphasis supplied). Looking forward, however, to a possible day when there might no longer be any "controlled outlets," there might no longer be any minuend from which the subtrahend of "4 cents per gallon" could be subtracted. The four-cent differential would be floating free with no point of reference.

How then might we compute the "remainder"? Self-evidently, the Four Cent Rule did not look forward to such a day. As a functional subtrahend, can the Four Cent Rule even exist in a world without discernible minuends? With that historic context behind us, we turn to the case at hand.

The Present Case The appellant is Khalid Azam. He owns a retail gasoline service station at 8207 Liberty Road in Baltimore County, doing business as "Liberty BP." He is supplied with BP branded motor fuels for resale at his station by the appellee, Carroll Independent Fuel, LLC ("CIF"). CIF purchases the motor fuels that it then resells to Liberty BP from BP Products North America, Inc. ("BP"), a major refiner of motor fuels and other petroleum products. CIF, as a middleman, sells motor fuels under the BP brand name to numerous service station operators, including the appellant, for retail resale to motorists.

At some of these service stations, CIF itself owns the underlying real estate and leases the stations to the operators. CIF purchases the motor fuels from BP under a "Branded Jobber Contract." Under such a contract, CIF is not authorized to use BP's trademarks or to permit the service stations with which it deals to do so without BP's prior written approval and without strict adherence to the requirements and conditions set forth therein. The trademarks and other brand identifications are owned by "BP, PLC," which is organized under the laws of the United Kingdom. CIF sells BP branded motor fuels to the appellant under a "Dealer Supply Agreement." Pursuant to the agreement, the appellant is authorized to use BP's trade names, trademarks, service marks, logos, brand names, trade dress, design schemes, insignia, color schemes, and the like in connection with the advertising and sale of BP branded fuels at Liberty BP.

Under the Dealer Supply Agreement, CIF sets the per gallon price for the BP branded motor fuel it sells to the appellant. On December 30, 2016, the appellant filed a Complaint against the appellee in the Circuit Court for Howard County. The Complaint sought a declaratory judgment and injunctive relief. The heart of the appellant's Prayer For Relief is a declaration that CIF is required to give the appellant the benefit of the Four Cent Rule.

(b) The issuance of a declaratory judgment that the Defendant is required by § 11-304(l)(1) of the Maryland Marketing Act [Commercial Law Article] to provide Liberty BP with gasoline at wholesale prices for each grade of gasoline that are at least 4 cents-per-gallon under the lowest price posted for each grade of gasoline at Carroll's Controlled Outlets , including but not limited to, the prices posted for each grade of gasoline at Randallstown Outlet[.] (Emphasis supplied). Standard Of Review The case came on for resolution before Judge Lenore R. Gelfman. There were cross-motions for summary judgment. On October 24, 2017, Judge Gelfman denied the appellant's motion for summary judgment and granted CIF's motion for summary judgment.

On October 25, 2017, Judge Gelfman filed a very thorough 14-page Memorandum and Opinion explaining in meticulous detail her decision. Both parties agree that in this case there was no genuine issue as to any material fact and that summary disposition of the issues was, therefore, appropriate. The critical question before us is that of whether Judge Gelfman's interpretations of the pertinent statutes were correct as a matter of law, a question that we review de novo . We hold that they were.

Judge Gelfman gave two separate reasons for her decision in favor of CIF. Either of those reasons, standing alone, would justify her ultimate decision. The Four Cent Rule Does Not Apply To Jobbers The Four Cent Rule itself is codified as Sect. 11-304(l)(1) of the Commercial Law Article. Nestled immediately under it is its companion sub-provision, 11-304(l)(2).

(2) The provisions of this Act do not apply to independent jobbers and farm cooperatives. (Emphasis supplied). Being a "farm cooperative" is not in any way pertinent to what is now before us and we shall have no occasion to mention it further. "Independent Jobber," on the other hand, looms large.

Sect. 11-301(h) defines the term. (h) Independent jobber . - "Independent jobber" means an individual or corporation who purchases gasohol or gasoline products from a wholesaler for resale to a dealer. In her Memorandum and Opinion, Judge Gelfman, applying the statutory definition, found expressly that CIF was a "jobber." She also found that the contract between CIF and BP Products of North America, Inc. was a "Branded Jobber Contract." Defendant is a gasoline distributor that purchases gasoline from BP Products North America, Inc. and other suppliers, and sells it at wholesale to Plaintiff and other independent retail locations. Under its "Branded Jobber Contract" with BP Products North America, Inc., Defendant is granted the exclusive right to supply Plaintiff with BP branded gasoline and is further authorized to permit Plaintiff to use BP, PLC's trademarks and other trade dress materials.

Defendant also supplies its gasoline to retail locations that it directly controls, manages, and/or owns and where gasoline is sold directly to consumers. These retail locations directly compete with Plaintiff and other independent retail locations for the sale of gasoline to consumers. (Emphasis supplied). Just such a tripartite relationship was before the Court of Appeals in Chevron, U.S.A. v. Lesch , 319 Md. 25 , 570 A.2d 840 (1990).

Walker's Chevron was the retail service station or independent dealer in that case. It purchased its gasoline and other petroleum products from Bay Oil, Inc., an independent jobber. That jobber, in turn, purchased its gasoline wholesale from Chevron, U.S.A., a national oil company. Judge McAuliffe described the three-tiered relationship between the dealer, the jobber, and the refiner.

Walker's Chevron owned and operated an automobile service station business located on Conowingo Road in Bel Air, Maryland. It leased the premises, and also purchased gasoline, oil, and lubricants from Bay Oil, Inc. (Bay Oil), a jobber. Walker's Chevron was a "branded station"; that is, it displayed the signs and colors of a particular brand, Chevron, and sold only that brand of gasoline and oil. Bay Oil purchased the Chevron products that it sold to Walker's Chevron from Chevron U.S.A., Inc. (Chevron U.S.A.), a national oil company. 319 Md. at 27 , 570 A.2d 840 (emphasis supplied; footnotes omitted).

The role of the jobber, Bay Oil, in Chevron v. Lesch is indistinguishable from the role of CIF, the jobber in the present case. CIF was the middleman, the jobber, between the appellant and BP. Judge Gelfman's Memorandum and Opinion relied on the same close relationship between the present case and Chevron v. Lesch . The same